- Tech stocks started the year in the red – but have fallen since July.
- The Nasdaq Composite is down 9% from its peak, leaving investors once again worried about the Federal Reserve.
- The central bank has indicated that it will keep interest rates high until 2024 to reduce inflation.
Tech’s run of spectacular wins heading into early 2023 has stalled dramatically over the past few months, with the sector in decline as investors worried about sticky inflation and higher-than-expected interest rates.
The Nasdaq Composite has fallen 9% since reaching its peak for the year on July 19 – while the S&P 500 Information Technology index, which gauges the performance of IT companies listed on the benchmark index, has fallen 10% over the same period.
This decline is a far cry from the technology’s performance between the beginning of January and the end of June.
The sector enjoyed an AI-fueled boom in the first half of 2023, with the rise of the “Magnificent Seven” group of mega-cap tech stocks driving huge gains for both the Nasdaq and the S&P 500.
But since the mid-July peak, investors have once again started to worry about interest rates – with the Federal Reserve signaling it plans to keep borrowing costs below their current levels through 2024 to crush inflation. which is still clearly looming. of the Central Bank’s 2% target.
Chairman Jerome Powell said earlier this month that the Fed now plans to “proceed cautiously” in its campaign against rising prices, but indicated it would not start cutting rates until the middle of next year.
Most investors don’t expect the central bank to begin easing until July 2024, according to CME Group’s FedWatch tool.
Higher interest rates disproportionately affect technology and other growth stocks, as they are more dependent on borrowing cash to boost their future cash flows.